Crypto winter, NFT and copy trading: what awaits the cryptocurrency market in 2022

Crypto market analyst platform Messari has released its annual report on what the market holds for the future. We can say for sure - you won’t be able to escape from the crypt.

The Messari Cryptocurrency Trends Report was published at the end of 2021. The study can be found at the link.

Loss of trust in institutions

Messari CEO Ryan Selkis' first prediction for 2022: The "real" world will get worse before it gets better. There is a 70% chance that the US inflation rate will remain above 5% throughout the year. At the same time, higher interest rates will slow down the stock market and hurt rising stocks. For cryptocurrencies, this is good in the short term. But there are risks in the medium term as crypto businesses become increasingly censored by Western tech and banking platforms amid the crackdown on cryptocurrencies by the Joe Biden administration.

Web3 is a new reality that cannot be avoided

Web3 is the concept of the internet based on the blockchain.

According to the new philosophy, the opportunity to earn and build a business should move from large corporations and institutions to ordinary people.

To do this, the crypto-ecosystem already has all the necessary components:

Talents: A huge number of ambitious young developers create new solutions in cryptocurrencies, often devoting whole nights and weekends to this. Capital: In 2021, the amount of venture capital and investments in crypto startups increased. Timeliness: The necessary infrastructure was built during the last bear market (the term used to describe a period when assets fall in value by 20% or more). This facilitated the development of Web3 socially and practically.

Young people see traditional banks and stock exchanges as exploitative and therefore seek to invest in technologies that bankrupt or even destroy them. One of the popular tools is DeFi or decentralized financial systems. These are analogues of traditional financial instruments — securities, futures, options — implemented in a decentralized network with equal participants. The main goal of DeFi is to become an alternative to the existing banking sector: DeFi offers depositors 5% versus 0.5% on Wall Street. The economy of users is becoming more attractive than the usual economy of institutions, so Messari analysts are 99% sure that by 2030 cryptocurrency will become orders of magnitude more popular.

Three scenarios are possible in 2022:

Before the end of the first quarter of 2022, we will see a sharp increase in market volume, followed by an equally sharp drop and a shallow but painful multi-year bear market. The amount of money in cryptocurrency will grow to $20 trillion and will stay at this level throughout the year. Slowly but surely, the amount of funds in cryptocurrency will move upwards towards infinity.

Do not confuse Web3 and Web 3.0. The concept of the World Wide Web Web3 is based on the blockchain, while Web 3.0  is the concept of a new generation of the Internet based on the principles of the Semantic Web. Her idea was that machines would analyze the information on web pages and synthesize conclusions based on it. But this idea has many disadvantages - for example, the search engine will choose what to show to the user; this facilitates censorship and compromises personal data. On the contrary, it is expected that the main advantage of Web3 will be decentralized data storage and better protection of users' confidential information.

NFT: the fall and new rise of digital art

Non-fungible tokens are gaining popularity as they can be anything - artwork, unique avatars, a FACEBOOK data entry, or even a piece of land in the metaverse. But the NFT infrastructure — marketplaces, creator tools, community business models, data management systems — is still in its infancy. Therefore, in 2022, NFT infrastructure will become one of the most demanded areas in terms of investment.

For the metaverse, NFTs will become one of the main “building blocks”: there we will need unique digital objects with real value, so we will certainly be ready to pay authors for digital goods that others will definitely no longer have. For example, this is necessary so that all avatars in the digital world are not the same - then it will be easier to avoid identity theft.

Excluding collectible avatars, the total sales of digital art NFTs today are less than $2 billion. That is, NFTs still account for less than 1% of the physical art market. The authors compare NFT with bitcoin in 2013: in 2014, this bubble “burst” and the bitcoin rate fell by 80%.

It is possible that the same will happen with non-fungible tokens in 2022. But if the analogy with BTC continues, this drop will mark a new rise for NFT over the next 10 years - even higher than before. Analysts at Messari are confident that the outcome will be positive, because the potential of NFTs is almost unlimited.

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DAO - digital communities with a common mission

2020 was the year of DeFi, 2021 is the year of NFT, and 2022 will be the year of DAO.

DAO is a decentralized autonomous organization that is managed by program code and does not depend on the human factor. In such systems there is no hierarchy, all decisions on changes in the protocol are made by all participants on an equal basis with each other. Every digital community is centered around a common cause: running a library, a shared workforce, a social club, an NFT collection, and so on.

The most famous example of such a community is a crowdfunding organization called The DAO. In 2016, the company raised over $150 million in investments, becoming the largest crowdfunding project in history. True, it closed in the same year due to the theft of funds by hackers. But developers continue to learn from their mistakes and improve the technology. Now DAOs are popular in narrow circles of crypto-specialists, but their potential is huge - management automation will greatly reduce bureaucracy and the human factor in almost any company.

Experts highlight the key features of DAO:

The members of the group are independent parties; Availability of SmartContract — an open source code on the blockchain; Open membership; A token is used to manage the community, which distributes funds in accordance with priorities, stimulates participation and punishes violations of the rules; The group has internal capital to automate the market, prevent collusion, and stimulate the creation of ascending communities.

Most of us will someday work for the DAO, so, says Ryan Selkis, it makes sense to pay attention to this model now.

Multichain: building bridges

Today, there are 15 blockchains, each with $10 billion in assets, and Bitcoin and Ethereum combined are valued at $2 trillion. Now the world of blockchains resembles the physical world with different countries that have their own economy and laws. And it seems that growth will not slow down in the near future, and there will be even more blockchains.

All new blockchains will now have to communicate with each other. Therefore, the most acute problem in Web3 is the lack of bridges. Analysts believe that the virtual world will be conquered by those who can create the most convenient way to connect between blockchains.

This means that the multi-chain future is not far off - the authors of the report are sure that it has already arrived.

Multichain is a network that connects blockchains into a single space in which you can quickly and securely transfer and process data from various blockchains.

Modern solutions are still in an immature state, which leads to disputes between users and developers. A bridge that achieves sustainable decentralization and is well integrated will facilitate even more asset and data transfer.

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The crypto industry is divided into sectors

If earlier the cryptocurrency industry was strongly associated with bitcoin, now users and investors understand that there are different areas in it. Currencies, DeFi applications, distributed computing platforms, NFTs - each of these sectors has its own specialists.

Ari Paul, chief executive of investment firm BlockTower Capital, writes: “Cryptocurrency options that are not directly related to bitcoin are finally on the rise. DeFi and NFT were virtually non-existent 4 years ago, as were most other "sectors". Now DeFi farming or NFT speculation is becoming a full-time job, and sooner or later it will take a small team to keep up in one of these segments.”

Here, private equity funds will have a permanent advantage over their generalist competitors. The entry threshold for crypto investment remains high. The main obstacles are the complexity of technical training, risk management and compliance with legal requirements.

Crypto funds at the end of 2021 experienced their best times. This dynamic is likely to continue into 2022.

Venture capital: new records

In 2021, a staggering amount of capital has poured into the crypto industry. The value of crypto funds' assets has risen to a record high. Some funds, such as Multicoin, are becoming some of the most efficient investment firms of all time. Today firms like Polychain, Paradigm, a16z, Multicoin, 3AC have billions of dollars under management. The average check per deal here is $25 million.

In 10 years, a $3 trillion cryptocurrency market has formed. Now it competes with all other venture startups combined. When new money enters the crypto space, it tends to flow in two directions – inward and downward. But do not go back out of the crypt. Capital "settles" on BTC (Bitcoin), ETH (Ethereum), SOL (Solana) and leaves the ecosystem only in the form of taxes.

According to Dove Metrics, in the third quarter of 2021, private investments totaled $8 billion across 423 deals. This is more than in the previous six years combined. Nearly 90% of the largest transactions in the history of cryptocurrencies took place in 2021. Institutional investors - legal entities that specialize in investing in financial assets - are now even more interested in crypto.

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What for what: forecasts for BTC, ETH and other Bitcoins. Bitcoin has no rival that could take it off its pedestal. Most likely, in 2022, the maximum price of BTC will be between $100,000 and $125,000. If things take a crazy turn, then BTC will be equal in value to gold. In this case, the price could be $500 thousand Ethereum. ETH fans have been talking a lot lately about Ethereum overtaking Bitcoin. This is unlikely to happen. Ethereum has problems with scaling: it takes a long time to send transactions. Analysts are asking the question, can Ethereum beat MICROSOFT, APPLE or Google? To do this, you need to grow 3-5 times. Solana and other "non-bitcoins".The new crypto star ranks ninth in terms of market capitalization ($30 billion at the end of March 2022). Other young cryptocurrencies are in the same segment: Polkadot ($22 billion), Avalanche ($23 billion), Terra ($34 billion) and so on. All of Ethereum's competitors have money to compete with, but as an investor, you must either choose the right winner among them, or buy a set of several different coins as a single asset so as not to track the state of cryptocurrencies separately. DeFi.Despite gigantic growth in 2020, decentralized financial systems still make up less than 1% of the market capitalization of global banks. For traders who are convinced that crypto capital markets will crowd out centralized institutions, DeFi is perhaps the best option in terms of risk-reward. But do not forget about technical vulnerabilities. NFT. Estimating the market capitalization of NFTs is not easy because they are not interchangeable. For example, CEO of Three Arrows Capital Su Zhu estimates NFTs at 10% of all cryptocurrencies — $225 billion. But this is more about opportunities for digital content authors and infrastructure developers than about the investment attractiveness of any specific NFT projects. Crypto winter is near

On February 21, 2022, Ethereum co-founder Vitalik Buterin announced that the digital asset market had entered the crypto winter. So, in November 2021, bitcoin cost $69 thousand, and on February 21, 2022, it was already $37.2 thousand. The authors of the Messari report also warned about this. There have already been two such periods in the history of cryptocurrencies - from 2013 to 2015 and from 2017 to 2018. During this time, many investors risk going bankrupt due to poor tax planning, missing out on promising projects, and losing sight of the long-term potential of cryptocurrencies.

The authors of the report advise not to immediately rush to buy cryptocurrency “at a discount”, since the rate can always fall lower and remain in this state for longer than you might imagine. Any transactions must be made especially deliberately so as not to be disappointed in the cryptocurrency before it restores its positions.

According to Vitalik Buterin, there is also a positive factor in the crypto winter – during this time, low-quality and short-lived projects will leave the market. And the unicorns of the next cycle will just be built during the period of stagnation.

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Copy Trading: Passive Investing

Crypto trading tends to be social and mimetic in nature. This means that many small or not very experienced traders are willing to invest in new projects supported by the largest and most successful investors in the industry. This is copy trading - copying transactions of another investor. Thus, you can start trading in the stock markets without even knowing how it all works. You can choose a “role model” on a special platform using filters, or seek help from Quantum AI, which analyzes the market and offers the best deal options.

The crypto market has its own rhythms. For example, if BTC is in the lead, then the season of alternative coins is just around the corner. Some argue that the trading narrative in crypto is as simple as two and two: “BTC rises – ETH rises – altcoins rise.”